Why Do U.S. CEOs Pledge Their Own Company's Stock?

Kornelia Fabisik
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Kornelia Fabisik: Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute

No 19-60, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Between 2007 and 2016, 7.6% of publicly listed U.S. firms disclosed that their CEOs had pledged company stock as collateral for a loan. On average, CEOs pledge 38% of their shares. The mean loan value is an economically sizeable $65 million. CEOs use the funds to either double down (6.0%), hedge their ownership (3.5%), or to obtain liquidity while maintaining ownership (90.5%). My event study results reveal that stock market participants view pledging as value-enhancing, but perceive significant pledging as value-destroying. Similarly, I find no evidence of its negative shareholder value consequences, except for CEOs who engage in significant pledging.

Keywords: CEO ownership; CEO incentives; pledging shares; margin loan (search for similar items in EconPapers)
JEL-codes: G30 G32 G34 (search for similar items in EconPapers)
Pages: 68 pages
Date: 2019-11
New Economics Papers: this item is included in nep-cfn
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1960

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